For millions of UK graduates, student loan repayments are a fact of life that affects take-home pay for decades. Whether you’re on Plan 1, Plan 2, Plan 5, or the postgraduate loan, understanding how repayments work in the 2026/27 tax year is essential for financial planning and salary negotiations.
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Which Repayment Plan Are You On?
Your repayment plan depends on when and where you studied. Plan 1 applies to students who started before September 2012 in England and Wales, or all Scottish and Northern Irish students regardless of when they studied. Plan 2 covers students who started between September 2012 and July 2023. Plan 5 — the newest plan — applies to students who started from August 2023 onwards. Postgraduate loans are completely separate and have their own thresholds and rates.
2026/27 Repayment Thresholds
For the 2026/27 tax year, the repayment thresholds are as follows. Plan 1 graduates repay 9% of earnings above £24,990. Plan 2 graduates repay 9% of earnings above £28,030. Plan 5 graduates repay 9% of earnings above £26,065. Postgraduate loan holders repay 6% of earnings above £21,000. These thresholds are reviewed annually and typically increase with inflation.
How Repayments Actually Work
Student loan repayments are deducted automatically from your salary through PAYE, alongside income tax and National Insurance. If you’re self-employed, repayments are calculated through your self-assessment tax return. The key thing to remember is that repayments are based entirely on your earnings — if you earn below the threshold, you pay nothing that month. This makes the system more like a graduate tax than a traditional loan.
Interest Rates Can Grow Your Balance
Plan 2 loans accrue interest at a rate linked to the Retail Price Index (RPI) plus up to 3%, depending on your earnings. This means high earners can see their balance grow significantly even while making repayments. Plan 5 loans use a simpler interest rate — just RPI — making them more affordable over the lifetime of the loan. Understanding your interest rate helps you make informed decisions about whether to overpay.
Should You Pay Off Your Student Loan Early?
This is perhaps the most common question graduates ask, and for most people the answer is no. Plan 2 loans are automatically written off after 30 years. Plan 5 loans are written off after 40 years. If you don’t expect to earn enough to clear the full balance before write-off — which applies to the majority of graduates —
making extra payments is essentially giving money away. You’re better off putting that money into a pension or savings where it can work harder for you.
Planning Your Repayments
If you want to understand exactly how much you’ll repay over your working life — and whether you’re likely to clear the balance or have it written off — a student loan repayment calculator can give you the full picture. PayToolkit’s student loan calculator lets you simply enter your salary, current loan balance, and plan type to see your projected total repayments, monthly deductions, and estimated write-off date.
Understanding your student loan helps you make smarter decisions about your career, salary negotiations, and whether overpaying makes financial sense for your specific situation.
